FATCA and CRS governance and controls mechanisms: Luxembourg tax authorities have started to audit Financial Institutions

14/11/19

In brief

Since the end of October, Luxembourg tax authorities have started issuing letters to many Luxembourg Financial Institutions (“FIs”) subject to FATCA/CRS obligations, in order to verify their compliance with FATCA and CRS due diligence and reporting requirements. These requests concern all industries (banking, insurance and investment management industries).

In detail

The Luxembourg tax authorities have started issuing letters in application of Article 4 of the law of 24 July 2015 on FATCA (“FATCA Law”) and Article 6 of the law of 18 December 2015 on CRS (“CRS Law”). On this basis, the Luxembourg tax authorities are authorised to audit Financial Institutions’ compliance with the FATCA and CRS due diligence and reporting obligations and to assess the control mechanisms implemented.

The concerned FIs will notably be required to provide copies of their internal written procedures detailing how due diligence and reporting obligations are dealt with, and to provide copies of the self-certification forms used to collect data from the Account Holders.

Moreover, the FIs are expected to present details on the IT systems used for their reporting purposes and a detailed description of internal and external controls implemented (including where relevant copies of any available internal or external review reports).

The tax authorities also enquire about any other additional efforts made by the FIs to comply with their FATCA and CRS obligations, such as for example trainings provided to employees.

The delay to answer this request is relatively short (approximately a month).

As a reminder, Article 2(5) of the FATCA law and Article 3 (1) of the CRS Law set both a penalty regime, with a maximum penalty of EUR 250,000 applicable (twice) in the case of non-compliance with FATCA and CRS obligations. Also, in case of absence, late, incomplete or erroneous reporting, the Luxembourg tax authorities can add a penalty amounting to 0.5% of the amounts that should have been reported (with a minimum of EUR 1,500).

What’s next?

We may expect that the Luxembourg tax authorities will increase the number of similar requests over the coming weeks, and that this might be the first stage of certain upcoming FATCA and CRS audit procedures.

Market players should be prepared to provide the Luxembourg tax authorities with appropriate information on the procedures, governance framework and controls mechanisms in place.

This can be of particular significance in the investment fund industry where due diligence and reporting obligations are often delegated to a third party. Ability to evidence controls carried out by the service provider and effective oversight by the concerned FI/fund manager could be key.

Our FATCA and CRS dedicated expert team can assist you during this process.

Contact us

Murielle Filipucci

Partner, FS tax Leader, PwC Luxembourg

Tel: +352 49 48 48 3118

Kerstin Thinnes

Partner, AEol Leader, PwC Luxembourg

Tel: +352 49 48 48 3177

Géraud de Borman

Partner, Insurance tax Leader, PwC Luxembourg

Tel: +352 49 48 48 3161

Oliver Weber

Partner, Asset and Wealth Management Leader, PwC Luxembourg

Tel: +352 49 48 48 3175

Pierre Kirsch

Managing Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 4031

Amandine Horn

Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 2026

Camille Perez

Director, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 4618

Frauke Anna Maria Ortmann

Senior Manager, Tax Information Reporting, PwC Luxembourg

Tel: +352 49 48 48 3762